General Electric announced Friday that it would slim down its real estate and financial operations to focus on its core industrial business, a move intended in part to get financial regulators to lessen their oversight of the company’s finance arm.
The company said that it would sell “most” of the assets at its finance arm, GE Capital, over the next two years, in an effort to create a “simpler, more valuable company.”
GE Capital is one of four firms that has been labeled a “systemically important financial institution” by federal financial regulators, meaning that it poses the same risks to the broader financial system in case of failure that a large Wall Street bank would.
GE hopes that the super-group of federal regulators known as the Financial Stability Oversight Council will remove that label and the accompanying added regulation after it sells off GE Capital assets.
“We have a constructive relationship with our regulators and will continue to work with them as we go through this process,” Chairman and CEO Jeff Immelt said in a statement.
The company said that it would keep the parts of GE Capital that directly relate to its core businesses, but sell off $26.5 billion of real estate holdings as well as commercial and consumer lending lines of business.
Doing so will test the ability of the council to reverse its determination that a particular firm is risky enough to warrant added supervision and tougher rules.
Formed by the 2010 Dodd-Frank financial reform law to detect threats to the financial system wherever they might stem from, the council is still relatively new.
In recent weeks, businesses and members of Congress have asked the council, which is led by Treasury Secretary Jack Lew, to clarify how firms might avoid the “systemically important” label or shed it once it’s been applied.
Immelt said on a call with investors Friday morning that recent guidance published by the Council and congressional hearings in March helped clarify the requirements for removing the label, aiding General Electric in making the decision to sell parts of GE Capital.
Systemically important firms received added supervision from the Federal Reserve and higher mandatory minimum capital ratios, although the exact terms of the added regulations have not yet been spelled out.
That heightened oversight raises the cost of doing businesses, firms have complained.
Republicans, in particular, have alleged that the council lacks accountability and transparency, and have sought to prevent it from designating additional firms systemically important.
In addition to GE Capital, the other companies that the council has designated are Prudential, MetLife, and American International Group, the insurance whose 2008 failure threatened to bring down Wall Street and inspired the legislative push to create the council.
